Key points

In the year to March the output price index for goods produced by UK manufacturers (factory gate prices) rose 2.0%, compared with a rise of 2.3% in the year to February.

Between February and March factory gate prices rose 0.3%, compared with a rise of 0.8% between January and February.

In the year to March core factory gate prices, excluding the more volatile food, beverages, tobacco & petroleum products, rose 1.3%, the same movement in the year to February.

In the year to March the overall price of materials and fuels bought by UK manufacturers for processing, known as total input prices, rose 0.4%, compared with a rise of 2.1% in the year to February.

Between February and March total input prices fell 0.1%, compared with a rise of 2.8% between January and February.

A brief description of Producer Price Index

The Producer Price Index (PPI) is a monthly survey that measures the price changes of goods bought and sold by UK manufacturers and provides a key measure of inflation, alongside other indicators such as the Consumer Prices Index (CPI) and Services Producer Prices Index (SPPI). This statistical bulletin contains a comprehensive selection of data on input and output index series. It contains producer price indices of materials and fuels purchased and output of manufacturing industry by broad sector.

The output price indices measure change in the prices of goods produced by UK manufacturers (these are often called 'factory gate prices').

The input price indices measure change in the prices of materials and fuels bought by UK manufacturers for processing. These are not limited to just those materials used in the final product, but also include what is required by the company in its normal day to day running.

Imported Price Indices (IPIs) are a series of economic indicators that measure change in the prices of goods and raw materials imported into the UK. IPIs are a key component of input price indices.

Exported Price Indices (EPIs) are a series of economic indicators that measure change in the prices of goods manufactured in the UK but destined for export markets.

Output prices: summary

Factory gate inflation slowed steadily from autumn 2011 until summer 2012 (Figure A). Core factory gate inflation, stripping out the more volatile food, beverages, tobacco & petroleum products, showed a similar pattern, although the decline was slower because petrol prices were pushing up inflation in autumn 2011, and they have a lesser effect on core inflation.

In the Budget on 20 March 2013, there were some changes to the duty rates for alcohol and tobacco products. From 20 March 2013, duty rates on tobacco products increased by 2% above the RPI. A similar rise for alcohol duty rates took effect from 25 March with the exception of beer prices, where duty rates were cut by 2%. We estimate that the affect of these changes would have less than a 0.1% increase to the headline factory gate inflation rate.

Looking at the more recent estimates (Table A), movements in factory gate prices over the 12 months to March were as follows:

Factory gate prices rose 2.0%, down from a rise of 2.3% last month.

Core factory gate prices rose 1.3%, the same movement as last month.

Factory gate inflation excluding excise duty stood at 1.8%, compared with a rise 2.1% in the year to February.

Between February and March:

Factory gate prices rose 0.3%, compared with a rise of 0.8% between January and February. The main upward contributions to the monthly price rise were from tobacco & alcohol, food products and chemicals & pharmaceutical products. These were partially offset by a fall in the price of transport equipment (see Table C).

Table source: Office for National Statistics

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Figure A: Output prices

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Supplementary analysis - Output prices

Table B shows the annual percentage change in price across all product groups and Figure B shows their contribution to the annual factory gate inflation rate. Table C and Figure C show the same information but for the monthly factory gate inflation rate.

Figure C: Contribution to 1 month percentage change in total (0.3%)

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Output prices: summary of statistics

Factory gate prices rose 2.0% in the year to March, compared with a rise of 2.3% in the year to February. The price index rose 0.3% between February and March, compared with a rise of 0.8% between January and February. The main contribution to the monthly rise was a 0.9% increase in the price of tobacco & alcohol products (Table C).

Tobacco & Alcohol product prices rose 0.9% between February and March and rose 5.9% in the year to March. Tobacco prices rose 1.5% between February and March and rose 9.0% in the year to March. Alcohol prices rose 0.6% between February and March and rose 4.1% in the year to March.

Food products prices rose 0.5% between February and March and rose 3.9% in the year to March as shown in Tables B and C. The monthly rise was due to a range of increases across all food products for example, meat, dairy and grains.

Chemicals & Pharmaceutical product prices rose 0.6% between February and March and rose 0.3% in the year to March. The monthly price rise was primarily due to a 0.5% increase in the price of chemicals and chemical products.

Core factory gate inflation

Core factory gate prices, which exclude the more volatile food, beverages, tobacco and petroleum product prices, giving a measure of the underlying factory gate inflation, rose 1.3% in the year to March, the same movement in the year to February. Between February and March, core factory gate inflation rose 0.1%. This index is not affected by changes in excise duty.

Input prices: summary

Since autumn 2011 the price of materials and fuels purchased by UK manufacturing industry, input prices, fell quite rapidly from an annual inflation of around 18% to deflation (prices lower than they were in the same month of the previous year) of around 2% in the middle of 2012 (Figure D). Over this period core input inflation (purchases by manufacturing industries other than the more volatile food, beverages, tobacco and petroleum industries) fell at similar levels.

Looking at the more recent data (Table D), the key movements were as follows:

The total input price index rose 0.4%, compared with a rise of 2.1% in the year to February.

The core input price index saw a rise of 1.6%, compared with a rise of 1.7% in the year to February.

In seasonally adjusted terms, (see Table D) the input price index for the manufacturing industry excluding the food, beverages, tobacco & petroleum industries fell 0.4% between February and March down from a rise of 1.5% between January and February.

The total input price index fell 0.1%, compared with a rise of 2.8% between January and February. The main upward contribution was a 2.1% increase in the price of fuels. This was offset by a 2.6% fall in crude oil prices and a 0.3% fall in imported metals. All other input groups saw price rises over this period (see Table F).

Figure D: Input prices (materials & fuel) manufacturing industry

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Notes for Input prices: summary

These indices include the Climate Change Levy which was introduced in June 2001.

These indices include the Aggregates Levy which was introduced in June 2002.

Supplementary analysis - Input prices

Table E and Figure E show the percentage change in the price of the main commodities groups over the year and their contributions to the total input index. Table F and Figure F show the same for the monthly input prices.

Figure F: Contribution to 1 month percentage change in total (-0.1%)

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Input prices: summary of statistics

The overall input index for all manufacturing, that is the price of materials and fuels purchased by manufacturers, rose 0.4% in the year to March, compared with a rise of 2.1% in the year to February.

The input index fell 0.1% between February and March, compared with a rise of 2.8% between January and February. The main upward contributions to the monthly rise in the price index were from fuels, home produced food and other imported parts & equipment. The main downward contributions came from crude oils and imported metals (see Table F and Figure F).

The index for fuels rose 2.1% between February and March, and rose 7.5% in the year to March. The monthly rise was mainly due to gas price increases. Fuel prices fell 3.1% between February and March 2012, which caused a large rise in the annual price movement.

The index for home produced food rose 1.1% between February and March, and rose 17.3% in the year to March. (see Tables E and F).

The index for other imported parts & equipment rose 0.7% between February and March, and rose 2.8% in the year to March (Tables E and F).

The index for crude oil fell 2.6% between February and March, and fell 9.0% in the year to March.

The core input price index in seasonally adjusted terms fell 0.4% between February and March. The unadjusted index rose 0.5% between February and March, with a 1.6% rise in the year to March.

Revisions

For this bulletin reference tables 8R and 9R (232 Kb Excel sheet)
highlight revisions to movements in price indices previously published in last month’s statistical bulletin. These are mainly caused by changes to the most recent estimates, as more price quotes are received, and revisions to seasonal adjustment factors, which are re-estimated every month. The headline figures for input prices for October and November have upwards revisions and there are no revisions for headline output prices. These revisions were mainly caused by quality adjustments due to late data.

Table G: Revisions between first publication and estimates twelve months later

Percentages

Revisions between first publication and estimates twelve months later

Value in last period

Average over the last 5 years

Average over the last 5 years without regard to sign (average absolute revision)

Total output: 12 months

2.0

-0.11

0.18

Total output: 1 month

0.3

0.03

0.10

Total input: 12 months

0.4

0.42*

0.69*

Total input: 1 month

-0.1

0.15*

0.41*

Table source: Office for National Statistics

Table notes:

* Statistically significant.

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Revisions to data provide one indication of the reliability of key indicators. The above table shows summary information on the size and direction of the revisions which have been made to the data covering a five year period. A statistical test has been applied to the average revision to find out if it is statistically significantly different from zero. An asterisk (*) shows that the test is significant.

The table presents a summary of the differences between the first estimates published between November 2006 and October 2011 and the estimates published 12 months later. These numbers include the effect of the reclassification onto SIC 2007.

Spreadsheets giving revisions triangles of estimates for all months from January 1998 through to December 2012 and the calculations behind the averages in the table are available in the reference table area of the ONS website;

Producer Prices has implemented the change to the Standard Industrial Classification 2007 (SIC 2007). The most significant change to PPI output prices involves the reclassification of ‘recovered secondary raw materials’ and ‘publishing’. These are no longer classified in the manufacturing sector, but are classified under services. In addition to this, a new SIC division, ‘repair, installation and maintenance of machinery and equipment’ has been created. Under SIC 2003 these activities were classified within the output of manufacturing, but as part of the specific industries where this activity took place.

Fundamental changes have been made to the classification of the PPI Trade surveys, Import Price indices (IPI) and Export Price Indices (EPI). As part of the reclassification project the classification of these trade surveys have become compliant with Eurostat’s Short Term Statistics Regulation. The collection of IPI and EPI will now be on an SIC basis, a switch from the Standard International Trade Classification (SITC) and Combined Nomenclature (CN) previously used. PPI input prices are heavily dependent on IPI.

Any comments about this work and its impact on PPI please contact Producer Price Index Operations on +44 (0)1633 45 6628 or email PPI Operations.

Relevance to users

Index numbers shown in the main text of this bulletin are on a net sector basis. The index for any sector relates only to transactions between that sector and other sectors, sales and purchases within sectors are excluded. However, the more detailed figures shown in reference tables 4 and 6 (232 Kb Excel sheet)
are on a gross basis; that is, intra industry sales and purchases are included in each of these indices.

Indices relate to average prices for a month. The full effect of a price change occurring part way through any month will only be reflected in the following month’s index.

All index numbers exclude VAT. Excise duty (on cigarettes, manufactured tobacco, alcoholic liquor and petroleum products) are included, except where labelled otherwise. Since PPIs exclude VAT, they are not affected by the increase in the standard rate of VAT to 20% from 4 January 2011.

The detailed input indices of prices of materials and fuels purchased by industry (reference table 6) (232 Kb Excel sheet)
do not include the climate change levy (CCL). This is because each industry can, in practice, pay its own rate for the various forms of energy, depending on the various negotiated discounts and exemptions that apply.

Common pitfalls in interpreting series

Expectations of accuracy and reliability in sample surveys are often too high. Revisions and sampling variability are inevitable consequences of the trade off between timeliness, accuracy and the burden on respondents. Details of sampling variability are included elsewhere in this bulletin.

Very few statistical revisions arise as a result of ‘errors’ in the popular sense of the word. All estimates, by definition, are subject to statistical ‘error’ but, in this context, the word refers to the uncertainty in any process or calculation that uses sampling, estimation or modelling. Most revisions reflect either the adoption of new statistical techniques or the incorporation of new information which allows the statistical error of previous estimates to be reduced. Only rarely are there avoidable ‘errors’ such as human or system failures, and such mistakes are made quite clear when they are discovered and corrected.

Definitions and explanations

Definitions found within the main statistical bulletin are listed here:

Index number

A measure of the average level of prices, quantities or other measured characteristics, relative to their level for a defined reference period of location. It is expressed as a percentage above or below, but relative to, the base index of 100.

Seasonally adjusted

Seasonal adjustment aids interpretation by removing effects associated with the time of the year or the arrangement of the calendar, which could obscure movements of interest. Seasonal adjustment removes regular variation from a time series. Regular variation includes effects due to month lengths, different activity near particular events, such as bank holidays and leap years.

Accuracy

Figures for the latest two months are provisional and the latest five months are subject to revisions in light of (a) late and revised respondent data and (b), for the seasonally adjusted series; revisions to seasonal adjustment factors are re-estimated every month. A routine seasonal adjustment review is normally conducted in the autumn each year.

Every five years, producer price indices are rebased, and their weights updated to reflect changes in the industry. The article (51.5 Kb Pdf)
referred to in background note 1, informs users about work underway to rebase PPIs from a 2005=100 basis to a 2010=100 basis, and update the weights. PPIs will move to a 2010=100 basis from autumn 2013. More information about the impact of rebasing will be published as the project progresses and will be drawn to users attention in the regular statistical bulletin.

Publication policy

The complete run of data in the tables of this bulletin are also available to view and download in other electronic formats free of charge using the Office for National Statistics Datasets and Reference Table service (if you want the data associated with this bulletin click into Download data in this release option). Users can download the complete release in a choice of zipped formats or view and download their own selections of individual series.

Details of the policy governing the release of new data are available from the Media Relations Office. A list of the names of those given pre-publication access to the contents of this bulletin is available on the Producer Price Index: Pre-Release Access List. (21.9 Kb Pdf)

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